New Policy Regime and Adjustment Process of Manufacturing Sector in Punjab

Abstract

In India, the policy regime has undergone a drastic change during the decade of 1990s after the introduction of major reforms in July 1991. After the advent of the new policy regime the manufacturing sector in Punjab is in the throes of a very significant phase of transition with severe challenges and many new opportunities. Different sub sectors of industry in Punjab have responded differently to adjust optimally in response to changed policy regime. The adjustment has been on the input, output or on the processing side. To compete in this globalised world, productivity of manufacturing sector is another crucial factor. Improvement in productivity is related to increased profitability, lower costs and sustainable competitiveness.

The present study analyses productivity trends for the Indian manufacturing and Punjab manufacturing for the time period 1980-81 to 2002-03 and also for sub periods, Period I 1980-81 to 1990-91, the pre-reform period and period II is 1991-92 to 2002-03, the post-reform period. The study analyses the trends in output (value added), inputs (labour, capital), labour productivity, capital productivity, capital intensity and total factor productivity for the Indian manufacturing sector at aggregate level and at two digit level. A detailed analysis for pre-reform period and post-reform period shows that the performance in terms of partial productivity and total factor productivity has decelerated in the post reform period in aggregate manufacturing and for most of the industrial sectors in India as well as in Punjab manufacturing.

Comparative analysis of the Indian manufacturing and Punjab manufacturing at aggregate level depicts that the total manufacturing of India grows at a higher rate in terms of capital, labour productivity and capital intensity and Punjab manufacturing grows at a higher rate in terms of rate of growth of labour and capital productivity. The growth rate of value added and total factor productivity depict similar trends for both Indian and Punjab manufacturing. An attempt has been made to trace the factors influencing productivity for Indian manufacturing and Punjab manufacturing. Ordinary least square and stepwise regression results show that coefficients for output growth variable are positive and statistically significant in most of the industries in Indian and Punjab industries. A positive and significant relationship has also been observed between capital intensity and total factor productivity.

The present research also uses a survey technique to study the adjustment process of Punjab manufacturing of two hundred firms. The industries covered are: engineering goods, cycle and cycle parts, hosiery, machine tools, steel rerolling, sewing machine and sports goods. The data has been collected from the six major industrial centres of Punjab viz. Ludhiana, Jalandhar, Amritsar, Gobindgarh, Patiala, and Mohali. The questionnaire has covers the overall performance of the firms, the performance of employees, the impact of globalization on technology adoption, adaptation and on research and development.

The present research work has arrived at the following broad conclusions. There is a difference in the nature and quantum of this adjustment. Most of this adjustment is limited to bigger and older firms, and smaller and newer firms respond with lesser rigour to the reforms. Most of the firms of Punjab have turnover less than fifty crores. The percentage of investment by foreign companies in Punjab is generally low. Total sales and net profit rate over the past ten years has shown an increase in the manufacturing sector of Punjab. The percentage of technically skilled employees is rather low and needs to be improved. Old, medium and large sized firms have organized more training programmes for the employees during the last ten years. Opportunities created by globalization in the form of vast international markets have encouraged almost all the firms to go for new technology and about fifty percent firms are now using advanced technology. Investment and employment in research and development is very low in Punjab manufacturing. Performance of research and development activities is moderate in most of the firms.

Overall results highlight that Indian and Punjab Manufacturing sector record a deceleration in growth in the post reform period. Manufacturing sector growth has been associated with higher growth of capital and higher capital intensity. Rate of Output growth emerges as a significant determinant of productivity. Old and large firms of Punjab have performed better in terms of output growth and overall performance.